Canadian banks with operations south of the border are showing some scars from the United States banking crisis, with deposits coming under pressure in the first quarter according to filings with the U.S. Federal Reserve.

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Crisis hits Canadian banks' deposits in U.S. with TD faring the worst, filings show Back to video

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On average, deposits at the four Canadian banks with significant U.S. divisions slipped by three per cent quarter over quarter, according to a May 1 note from National Bank of Canada analyst Gabriel Dechaine. The calculations were based on quarterly filings known as call reports made to the Federal Financial Institutions Examination Council. Dechaine said the dip was consistent with what U.S. banks have experienced and that steepest declines were recorded in non-interest-bearing deposits.

Toronto-Dominion Bank was hit the hardest with a quarter-over-quarter drop in deposits at five per cent, driven by an 18 per cent decline in sweep deposits, or accounts that move excess funds between a chequing account to a higher interest-earning account, since last quarter. Dechaine said the deposit sweeps were related to TD’s 12 per cent stake in Charles Schwab Corp., which gave the Big Six bank more exposure to the U.S. sector’s woes. TD’s total deposits were also down 12 per cent from this time last year.

Bank of Montreal, meanwhile, reported deposits on a combined basis with its recent U.S. acquisition, Bank of the West, for the first time. Deposits fell three per cent from the pre-merger total one quarter ago and four per cent from the year ago period.

The Canadian Imperial Bank of Commerce fared the best with a three per cent growth in deposits year over year, though it slipped two per cent on a quarterly basis. The Royal Bank of Canada’s deposit growth was unchanged from the previous quarter but fell by eight per cent on a yearly basis.

Banks on both sides of the border are still being hit with the fallout from the Silicon Valley Bank collapse, which rippled across the U.S. regional banking sector. The Santa Clara-based bank folded in March after a run on deposits, followed soon after by New York’s Signature Bank. Ailing Swiss financial giant Credit Suisse was also pushed to the brink and had to be rescued by authorities and Swiss competitor UBS Group AG.

First Republic Bank became the most recent casualty. It was seized by authorities and sold off to JPMorgan Chase & Co. on May 1. The episode spooked the markets, sending the S&P 500 and Dow Jones Industrial Average down nearly two per cent to 4,097 and 33,502 respectively by midday.

The U.S. filings also showed that loan growth across the Canadian banks managed to hold steady at an average of 11 per cent year over year, up one per cent from the previous quarter. Dechaine noted that commercial borrowing led the growth, rising 12 per cent from last year.

Dechaine said BMO and Bank of the West lagged its peers, with commercial loan growth slipping by one per cent and personal loan growth slipping by three per cent from last quarter.

“On a sequential basis, we noted a decline in both commercial and personal loans on the combined (BMO and Bank of the West) platform,” Dechaine wrote, adding that BMO might have to reconsider its expected returns from the transaction. “We note that (Bank of the West’s) loan and deposit balances were below the bank’s expectations when it closed the transaction on Feb. 1, 2023.”

The timing of the regulatory filings do not line up with the banks’ fiscal years and there are accounting differences that make them an imperfect proxy to bank earnings. Market watchers are expected to get more details when the banks report earnings later this month.

• Email: shughes@postmedia.com | Twitter: StephHughes95